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Attorney General Cuomo Announces Groundbreaking Agreement With Major Mortgage Brokers Who Discriminated Against Minority Customers

NEW YORK, NY (January 5, 2009)—Attorney General Andrew M. Cuomo today announced results of a landmark investigation with the New York State Department of Banking into discriminatory practices in the mortgage brokerage industry. In the first law enforcement action of its kind in New York State, two mortgage brokerage companies – HCI Mortgage and Consumer One Mortgage – will collectively pay $665,000 in restitution to approximately 455 Black and Latino borrowers who were illegally charged higher fees than similarly-situated White borrowers. The companies collectively operate more than 20 branches throughout New York State. The Attorney General also filed a lawsuit in federal district court against another mortgage brokerage company – U.S. Capital Funding, LLC – that engaged in similar discriminatory practices.

“The blatant discrimination in this case is as illegal as it is inexcusable,” said Attorney General Cuomo. “These customers were charged significantly higher fees for no reason other than being a minority – something that is explicitly against the law in New York State. Today’s agreements will put in place the necessary controls to ensure mortgage brokers comply with the law and offer fair and legitimate rates to all New Yorkers.”

Mortgage brokers assist customers in identifying and obtaining mortgage loans and serve as intermediaries between the lender and the borrower. The lenders may pay the brokers compensation for obtaining a higher interest rate than the minimal interest rate for which the borrower qualifies, commonly referred to as “yield spread premium.” Brokers also typically charge an up-front fee of approximately one percent to three percent of the loan amount when they assist customers with arranging a home loan. The amount of the fee is largely discretionary and subject to negotiation. However, New York and federal law prohibit mortgage brokers from charging more in fees based on the customer’s race or ethnicity.

The Attorney General’s office, the New York State Banking Department and fair lending experts, conducted statistical analyses of loans arranged by HCI Mortgage and Consumer One. The office concluded that, on average, Black and Latino borrowers were charged several thousand dollars more in up-front fees than White borrowers. The Attorney General’s investigation found that Latino borrowers who received a single home mortgage loan through HCI Mortgage paid on average 55 percent more in fees, or about $2680, than White customers. African-American borrowers who received a single home mortgage loan were charged about 46 percent more in fees than White customers, or $2260. These disparities could not be explained by borrower, property, or loan characteristics that might impact the amount of time HCI Mortgage or Consumer One took to arrange loans, such as the borrower’s credit score or the loan amount.

Richard H. Neiman, New York State Superintendent of Banking, said: "We will not tolerate discriminatory lending practices in New York. As the primary regulator for mortgage bankers and brokers in New York, the Banking Department will continue to work tirelessly to ensure that the rights of New Yorkers are protected. The outcome of this case is an example of what can happen when regulators and prosecutors work together to protect consumers from predatory lenders."

Today’s agreements require the companies to:

Pay $665,000 into a fund to provide restitution to certain Black and Latino customers who received loans from January 2005 through July 2007. Any funds remaining after restitution is paid will be distributed to not-for-profit corporations or organizations to provide consumer financial education or assistance to homeowners facing foreclosure in New York.

Adopt a standard fee schedule that will be disclosed to borrowers and must be followed unless exceptional circumstances exist.

Internally monitor and analyze the imposition of fees to ensure that Black and Latino borrowers are treated fairly and equally.

Provide detailed reports to the Attorney General’s office to ensure compliance with the agreement.

The Attorney General’s office conducted a similar investigation of U.S. Capital Funding and concluded that the company also had violated fair lending laws by charging much higher fees to Black and Latino borrowers. Because the company failed to agree to provide appropriate relief to victims, the Attorney General filed a lawsuit seeking restitution for over 100 minority borrowers and a court order requiring the company to cease its discriminatory practices.

The lawsuit alleges that from January 2006 through July 2007, U.S. Capital Funding served as a mortgage broker for approximately 300 home mortgage loans in New York, including about 135 loans made to Black and Latino borrowers. The lawsuit asserts that the company violated federal and state law by charging Black and Latino borrowers who received a single home mortgage loan on average 58 percent more in fees than White borrowers, resulting in an additional charge of about $3,500. These investigations were triggered by evidence revealed during the Attorney General’s earlier probe into discriminatory lending practices by GreenPoint Mortgage Funding, Inc. HCI Mortgage, Consumer One, and U.S. Capital Funding all did substantial business with GreenPoint. The office is continuing its investigation into potential discriminatory pricing by other mortgage brokers.

These cases were handled by Section Chief Jeffrey K. Powell and Assistant Attorney General Sunita Kini-Tandon, under the supervision of Deputy Bureau Chief for Civil Rights Alphonso B. David and Counsel for Civil Rights Spencer Freedman.